More than two years ago, in February, 2021, we wrote an article titled “SBAC Stock to Reach New High Before Bears Show Up.” The stock was trading just under $274 at the time, down 16% from its all-time high of $328 a share. SBA Communications is a leading wireless infrastructure provider, leasing its towers to wireless carriers such as AT&T and Verizon.
The company has a recession-proof business model and solid financials. The 5G rollout was supposed to make things even better for SBAC shareholders. On the other hand, the increase in demand was likely to be accompanied by a surge in capital expenditures. In other words, what would actually be left for investors was not yet clear.
So instead of trying to decipher the many unknowns of the fundamental picture, we turned to the charts. Our Elliott Wave analysis of SBAC stock below made us optimistic, but only in the short term.
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Two years and four months ago, we identified an almost complete five-wave impulse on the weekly chart of SBA Communications. Beginning from the rubble of the Dot-com bubble upwards, we labeled waves I, II, III and IV. Two lower degrees of the trend were also visible within the structure of the extended wave III. This count indicated that we can expect one last surge in wave V.
Then, investors would do well to prepare for the natural correction which follows every impulse. “A bearish reversal between $350 and $400 followed by a decline to the 2020 lows near $200 would make sense“, we wrote. The updated chart below shows that that’s exactly what happened.
On the last day of 2021, wave V lifted SBAC stock to $391 and change. Future looked bright and most analysts expected the uptrend to continue. Instead, the bulls suddenly ran out of power and haven’t been able to regain their footing to this day. Earlier this week, the share price dipped below $220, already trading near the lows of the Covid-19 panic of March, 2020.
SBAC stock is down 44% from its record, most of it during 2022 – a year when company revenue actually rose 14%. High valuation and the disappearance of free cash flows due to heavy CapEx can mostly explain this crash. Unfortunately for investors, such after-the-fact explanations are not worth the paper they’re written on. Elliott Wave analysis, on the other hand, actually managed to position us ahead of both the wave V rally and the plunge that followed.
Looking ahead, we still don’t think SBAC ‘s valuation makes it a good investment. The company trades at a normalized price-to-free cash flow ratio higher than 20. That’s far too expensive for a business whose growth rate is expected to screech to a halt this year. There are currently 18 other stocks in our portfolio whose prospects we like more.
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